Fair market price of property cannot be determined exactly. Valuation will differ from valuer to valuer – ITAT
In a recent judgment, ITAT Nagpur has deleted addition u/s 56(2)(vii)(b)(ii) observing that the fair market price of property cannot be determined exactly. Valuation will differ from valuer to valuer because of subjective appreciation of various factors either depressing the value of property or enhancing the value thereof.
ABCAUS Case Law Citation:
4620 (2025) (06) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition made by the Assessing Officer (AO) u/s. 56(2)(vii)(b)(ii) of the Income Tax Act, 1961 (the Act) being the difference in the value of property as per DVO report.
The return of the appellant assessee was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer issued show cause notice stating provision of section 56(2)(vii)(b) of the Act and proposed for addition being the difference between market value as per Stamp Act and actual sale consideration for purchase of two plots.
During the year, the assessee had purchased two plots of land at a total price of Rs. Nineteen lakhs as mentioned in sale deed. The actual market value of the said land/property considering various aspects such as falling under non–development area. Non-convertible to other than agriculture purchase etc. was very less.
The assessee had not purchased property at rate which is below market price. The assessee requested the Assessing Officer to get the property valued by Departmental Valuation Officer as per provision of first proviso to section 56(vii)(c) of the Act, in response to which the Assessing Officer referred to matter to Departmental Valuation Officer (DVO).
The assessee also got the said property valued by an Govt. approved valuer who by taking various aspect into consideration including comparative sale instances as also other depressing factors valued the both plot at less than actual sale consideration.
The DVO submitted valuation report valuing the both the plot of land at a total price of Rs. Twenty-Five lakhs which was ways higher than the sale consideration mentioned in sale deed. Based on the valuation report prepared by DVO, the Assessing Officer made the impugned addition.
Before the CIT(A), the assessee submitted that the DVO did not consider the depressing factors. It was submitted that plots were in unauthorized layout and were in the process of regularization by Department but their fate were uncertain. One does not know whether the said layout in will be regularized or not. Till the said layout was regularized, it continued to be a part of unauthorized layout. Secondly, the plot came under Railway Development Proposal and there was an uncertainty about the acquisition of plot and layout for Railway Development Plan.
It was also submitted that there were no internal roads. There was no development in the surrounding area also. There was neither any water supply arrangement nor power supply arrangement nor sewerage line. The plots were about 1 Km. interior from Road and civil amenities were about 4 kms away and the area.
However, the CIT(A), considering the submissions of the assessee as well considering the valuation report furnished by the DVO, the remand report furnished by the Assessing Officer, rejected the claim of the assessee.
The Tribunal observed that the government fixed the market value of the property on the basis of location of the area but not considered the general facilities as well and development of area.
The Tribunal further opined that apparently, the Assessing Officer as well as CIT(A) did not accept the contention of the assessee and the DVO has also not considered in the its valuation report that plots were situated at unauthorized layout and in the process of regularization. The plots also came under Railway Development Proposal. The sale deed clearly laid down that the plot was included in the list of 1,900 unauthorised lay outs to be regularized by the Board. Thus, there remained uncertainty about the acquisition of plot. There is not even marking of plots except some stray stone marking randomly installed. There were no internal roads. There was no development in the surrounding areas also. There were neither any water supply arrangements nor power supply and/or sewerage line installed.
The Tribunal further observed that insofar provisions section 56(2)(vii)(b) of the Act are concerned, the deeming provision which treats something as income which in reality is not an income and further the object of such provision is to avoid any underhand dealing in purchase of property. The assessee purchased immovable property for a consideration which is less than the stamp duty value of property by an amount exceeding Fifty Thousand Rupees, the stamp duty value of such property as exceeds such consideration will be deemed to be the income of the purchaser. It also provides an exception viz. where the assessee disputes the stamp duty valuation then the matter of valuation will be referred to by Assessing Officer to the Valuation Officer and the value determined by him of the property will be treated as a consideration instead of stamp duty valuation and assessment would be made accordingly as provided in section 56 rw section 50C of the Act.
The Tribunal observed that valuation will differ from valuer to valuer because of subjective appreciation of various factors either depressing the value of property or enhancing the value thereof. The fair market price of property cannot be determined exactly.
The Tribunal opined that under such a situation where the deeming provision is to be applied on the basis of expert opinion of valuer then the value which is never to the actual consideration as per registered sale deed that should be accepted.
The Tribunal further observed that there was no justification in the rate applied by the DVO which was purely on ad–hoc basis. Moreover, the nature of property is bound to have a dampening effect on market value. The valuation report of the DVO cannot be relied upon, hence the addition was not sustainable.
The Tribunal endorsed the valuation report of approved valuer for the very reason that the conditions and circumstances of the plots were affected under reservation. The Departmental Valuer had also clearly stated in property description that so far internal layout and colony roads had not been developed properly and also only stone making identifies the plot.
Therefore, the Tribunal held that the value shown by the assessee was true and correct. Consequently.
Accordingly, the Assessing Officer was directed to delete the addition by accepting the returned income furnished by the assessee. As a result, assessee’s appeal was allowed.
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